Tuesday: 29 June 2011

Yesterday, research firm CRISIL announced its study report about inflation, which stated that Surging inflation cost Indian households an additional Rs 5.8 trillion during 2008-09 to 2010-11. We can see news across all media, attaching different perspective to the headlines. The report clearly concludes that -
“Higher food prices should be an incentive to enhance production of food items, but this has not happened so far. In addition to price signals, productivity improvement in food/agriculture categories would require better technology and improved investments in irrigation. In the absence of these measures, high food inflation is here to stay.”

The Reserve Bank of India (RBI) has hiked its key policy rates ten times since March 2010 to curb demand and tame inflation, but that has not served the purpose. Ineffectiveness can be understood looking at the Crisil’s concluding remarks. If the cause of inflation is NOT hyper liquidity, how would these monetary measures by RBI be effective?...Yet Government leaves it just to RBI’s actions. This is an obvious failure on Government’s side that it has not been able to manage inflation since long time now. The basic issues on various fronts are not at all addressed. The major contributory factors to the recent inflation are price surges for food & fuel products.

On one side, Government has removed fuel price buffer, because of which fuel prices in India are directly influenced by international fuel price fluctuations. Due to such consequence, this factor is going to add to the inflation, definitely for some more time in future. And not only that fuel prices in India comprises of more than 50% amount of various taxes, which are same for the poor and the rich. And with ever increasing fiscal deficit, Government is not going to give that up, unless a radically effective innovation in taxation (like Arthakranti) is adopted.

On the other side, Government is failing to improvise on Farmer’s situation. First of all Government lack money & priority for solving Farmers’ issues. Recently there have been many judicial changes done for acquiring agricultural lands, Farmers now do not have much on their wish, they have to give up their land. Then Farmers and villages do not get good infrastructural support like roads, storages, electricity supply, water supply, even timely credit supply etc everything is missing. That is why, as reported in Crisil’ report, rising prices are not acting as incentive to enhance production of food items. That makes it imperative for many of the farmers to move from food grain crops to cash crops.

If this continues we will not only suffer of deteriorating value of our money but also even more dangerously we might lose our focus on agricultural produce and use of land for agricultural purpose. This will have very drastic unfortunate consequences going further, if we would have to rely on imported food produce. Hope that everyone of us wakes up and contributes to improvise the situation, by adding their bit of contribution!

Author,
Bhushan Patil, Pune